The Canada Mortgage and Housing Corporation (CMHC) has released a new report warning that municipal development charges represent a very significant barrier to addressing the national housing crisis. The report suggests that reducing or eliminating these fees could substantially increase the number of viable housing projects across the country.
Key Findings on Development Charges
The CMHC analysis, which examined data from 40 Canadian municipalities, found that cutting development charges by 50 to 60 percent could boost housing construction by about five percent in Toronto and Vancouver, Canada's most expensive housing markets. Eliminating these fees entirely would increase project viability by approximately 10 percent in both cities.
In Burnaby, a fast-growing city east of Vancouver, the model concluded that eliminating development charges would boost housing construction by 13.8 percent. These charges are fees imposed by local governments to fund new infrastructure such as sewers, electrical systems, and water services.
Impact of Smaller Cuts
The study found that smaller reductions of less than 20 percent would have a modest effect, increasing project viability by less than two percent in most cases. However, more substantial cuts could lead to significant gains in housing supply.
Mathieu Laberge, CMHC's chief economist, emphasized the importance of these findings. They represent a very significant barrier, he said, referring to development charges.
Context of the Housing Crisis
Canada has been grappling with a housing crisis for many years, driven by supply failing to keep pace with demand fueled by population growth, migration to larger centers, and immigration. This gap has led to massive increases in housing prices, leaving many Canadians house poor, stuck in unsuitable housing, or even homeless.
Expert Perspectives
Carolyn Whitzman, an adjunct professor at the University of Toronto's School of Cities, noted that cutting development charges would help reduce costs and improve affordability, but cautioned that the effects might be marginal without other policy changes.
Developers have indicated they would build more if land were made available and overall costs were lower. A recent study showed that taxation accounts for about 36 percent of the price of a new home, making governments the top beneficiary. Approximately 70 percent of that tax burden comes from development charges, land-transfer taxes, and HST, while the remaining 30 percent stems from indirect income and corporate taxes throughout the supply chain, ultimately passed on to buyers.
Municipal Revenue Challenges
Municipalities, which lack the authority to collect income or sales tax, rely heavily on development charges and property taxes for revenue. This creates a tension between the need for new housing and the need for local government funding.
